Price Discrimination in Online Shopping

Pablo Valerio, International Business & IT Consultant | 5/2/2013 | 27 comments

Pablo Valerio
Every grocery shopper knows that supermarket chains have been applying "zoning" for many years, and there is a significant price difference depending where you shop.

But online retailers, including Amazon, Best Buy, and Staples, and travel sites such as Orbitz, are increasingly using sophisticated analytics to price the same product or service differently depending who you are and where you live.

Except for advertised prices, people living in more expensive neighborhoods will pay higher prices for the same products unless the presence of cheaper competitors makes chains change their offers. While such discrimination can be frustrating for customers, it allows retailers to compensate for lost revenue when they need to liquidate stock and/or compete in certain locations, allowing them to stay in business. Some brick-and-mortar retailers with online shopping sites use price by location to be able to compete locally. For instance, one might see higher prices at a Staples in Harvard Square in Cambridge, Mass., than the same retailer in Somerville, just three miles away.

Tests conducted by journalists from Wall Street Journal demonstrated that Staples.com priced a basic Swingline stapler depending on the zip code of the customer. There were differences up to 10.5 percent. Users in price-sensitive areas and others where Staples has more direct competitors received lower prices.

A study from the Universitat Politecnica de Catalunya and Telefonica detected several methods used by retailers to differentiate potential customers and set different prices, such as combination of browser/OS, type of technology (tablet or smartphone) used to make a purchase, location, and personal information.

Search discrimination is another way to get more revenue from potential buyers. Search engines, knowing the user's history, display more expensive choices to users looking for a specific category instead of a single product. Two users looking for hotels in the same city, for the same dates, can get different choices depending on their location and search history. Booking sites make money on commissions paid by hotels, airlines, and other travel services and it is in their interest to get people to choose the most expensive choices.

Of course, there are two sides of the story. Those price differences can help some people get the service they want. The fact that some airline passengers pay a higher price for the same seats means that other people can afford traveling by plane.

Should CIOs help make price discrimination a reality? It depends on your potential market. I think it would be easier from a technical point of view, and less likely to create an angry customer, to offer special discount coupons to online shoppers instead of displaying different prices. Also, it is very important to keep existing customers happy by offering them the best deals.

As price discrimination grows, and price comparison becomes easier, discriminated customers may choose to go elsewhere. Still, used sparingly and with the right product mix, it could become another excellent tool to provide your CMO. If nothing else, to apply the tool, you need to know your customer and their habits better than you might know them now.

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glenbren   Price Discrimination in Online Shopping   5/7/2013 9:17:09 AM
Re: Price discrimination
if a retailer is pumping up the price 15% because of where you live or what browser you're using


How does a company determine pricing by what browser and operating system you use?

MDMConsult   Price Discrimination in Online Shopping   5/7/2013 8:04:21 AM
Re: Price discrimination
@SaneIT Agreed. Your comment is a great example how loyalty is effective as well. Customer priorities is important in online shopping. Giving customers strong decision rights has helped companies to maintain relatively high customer loyalty scores. The companies can also develop customer loyalty rewards and a loyalty system. Other long-term strategies involve revamping operations for stabilizing the capital levels and improve efficiency.
SaneIT   Price Discrimination in Online Shopping   5/7/2013 7:51:54 AM
Re: Price discrimination
I've been put on a couple lists where coupons are texted to me a couple times a month.  All I have to do is show the cashier the text and I get my discount.  I've also learned that sending the text to my wife while she's in line works just as well.  I see the future being more directed the way this store does it's coupon codes.  In this case the text message clearly gives an expiration date and I've never had trouble with them redeeming the codes.  I'd let more retailers text me these codes if I was a regular customer there because I'm the type that would forget that I had a coupon sitting at home but take my phone with me everywhere.
SaneIT   Price Discrimination in Online Shopping   5/7/2013 7:47:15 AM
Re: Price discrimination
I do the same thing.  If it's a bit online retailer I assume that they have coupon codes out there but if I had to guess I'd say that 90% of what is out there is expired or never worked.  When you do find one that works it's great but if a retailer is pumping up the price 15% because of where you live or what browser you're using and you find a 10% off coupon code you're still paying 5% more than someone in another zip code, for no real good reason.
kstaron   Price Discrimination in Online Shopping   5/6/2013 2:10:29 PM
Seems this might lose customers
I understand price discrimination to get a higher price based on the people who want now and want it fast, but the idea that I might be penalized because I live in an area with less competition, which may be the whole reason I'm using online shopping anyway, disturbs me. It may be a way to bring in extra revenue, but what happens them people discover they are being targeted? Is it better to provide one price for everyone or lose some customers altogether because you charged them more?
eethtworkz   Price Discrimination in Online Shopping   5/6/2013 12:27:00 PM
Pablo,You will like this Article
Pablo,

Just before I pored through your Blog,I had come across this Article on the FT

http://www.ft.com/intl/cms/s/0/42893492-b385-11e2-b5a5-00144feabdc0.html

Most interesting from that article-

 

Gary Weiner, owner of Saxon Shoes in Virginia and a board member of the National Shoe Retailers Association, said shoe-sellers were "very concerned" about fit-lifting.

 


"We also hear 'My mother sent me in to get my size fitted so she can buy them online'. Those exact words," he said. "We're a polite people. So we give them the time of day."

 

Why is this the case?

Most probably because

 
  1. The price of rent is too high
  2. For consumers, the convenience of having it now is not worth the extra cost

 

Lots to think about is'nt it?

 

Regards

Ashish.

 
glenbren   Price Discrimination in Online Shopping   5/6/2013 9:24:58 AM
Re: Price discrimination
Even sites with discount codes tend to be expired codes or what looks like random guessing or "it should work" codes.

That's true, and you do have to search for the diamond in the rough. I generally start with Google and search for the retailer+coupon code+month/year. You can usually see by the results if there is a current code or not. Adding a location factor does complicate things though.


 
MDMConsult   Price Discrimination in Online Shopping   5/6/2013 8:23:31 AM
Re: Price discrimination
@SaneIT Yes,  If overcoming mobile coupon challenges can be successful the industry should also see more volume in its usage. I noticed a challenge for the consumer when retailers such as the stores or restaurants are offering mobile coupons with coupon codes to redeem. This is great except for the fact that some of these coupons still require for you to print them out and redeem in person. This area needs improvement in how to save more time.
SaneIT   Price Discrimination in Online Shopping   5/6/2013 7:16:19 AM
Re: Price discrimination
Coupon sites are an interesting niche to me, but what I've seen is that there are far more bad coupon sites out there than useful sites.  Even sites with discount codes tend to be expired codes or what looks like random guessing or "it should work" codes. 
glenbren   Price Discrimination in Online Shopping   5/6/2013 12:41:36 AM
Re: Price discrimination
There are tons of coupon sites that list coupon codes for most online retailers that use them, and retailers often offer special deals to newsletter subscribers. I never purchase anything online without comparing prices, reading reviews, and searching for coupon codes. If I see a box to apply a coupon code during checkout, and I can't find a coupon code, I might reconsider the purchase. My thinking is that if they've offered a coupon to someone, there should be no reason I can't get it too. I wasn't aware that they use location information to determine prices. I don't like using a proxy, but I may try that as well.
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